Editorial

Editorial

Dear shareholders,

We look back on an extremely successful, but from an operational point of view very challenging financial year. The situation in the construction industry was positive in most regions. COVID‑19-related catch-up effects largely led to pleasing growth figures. In the last six quarters, net sales for the Geberit Group grew around three times faster than the long-term average. At the same time, this sudden strong growth represented an extremely challenging situation for our entire organisation, particularly in Purchasing, Production, Logistics and Sales. The further increase in results compared to the previous year was based on our structural and financial strength as well as our prudent crisis management right from the start of the COVID‑19 pandemic. This enabled us to further consolidate our position as leading supplier of sanitary products and gain market shares.

Record sales growth

In 2021, consolidated net sales rose by 15.9% to CHF 3,460 million – the strongest sales growth since going public in 1999. This development comprised an increase in local currencies of 14.7% and a positive foreign currency effect of 1.2%. The exceptional sales growth was due to the positive base effect and the home improvement trend as a result of COVID‑19, the build-up of inventories in the construction industry and market share gains. Despite the considerable challenges arising along the supply chains, we were able to safeguard product availability. When compared with 2019 – and thus with net sales before the COVID‑19 pandemic – also exceptionally strong growth after currency adjustments of 16.4% was seen across all regions.

Operating margins at the high level seen in the previous year

Results saw significant double-digit increases at all levels. Operating cashflow (EBITDA) increased by 15.6% to CHF 1,069 million, which corresponds to an EBITDA margin of 30.9% (previous year 31.0%). The significant increase was largely due to the exceptional volume growth. Raw material prices, which have risen massively since the end of 2020, as well as substantially higher energy and freight costs had a negative impact on margins. However, these negative effects were partially offset by regular as well as extraordinary price increases. Results were also curtailed by the partial normalisation of marketing costs compared to the previous year. Currency effects had no significant impact on operating margins. The increase in the operating result and an improvement in the financial result led to an increase in net income of 17.7% to CHF 756 million, corresponding to a return on net sales of 21.8% (previous year 21.5%). By comparison, earnings per share saw a disproportionate increase of 18.9% to CHF 21.34 due to the positive impact of the share buyback programme. Free cashflow increased by 12.8% to a new record high of CHF 809 million. The free cashflow margin reached 23.4% (previous year 24.0%).

Above-average employee satisfaction and identification

In the spring of 2021, we carried out a worldwide survey among the employees. The Group-wide participation rate was a high 79%. The results confirmed that Geberit offers attractive working conditions and that the employees demonstrate an above-average level of both motivation and loyalty. According to the comparative values of the independent consulting firm Korn Ferry, which conducted the survey, our results are well above the average in the industrial sector. Furthermore, they are also better overall than the results of the comparison group of particularly high-performing companies, which have an above-average score in terms of employee commitment and empowerment.

An overwhelming majority of the employees identifies very strongly with Geberit. Four-fifths of all those asked are proud to work for the company and would recommend it as an employer. 80% plan to work at least another five years at Geberit. In particular, the colleagues at work, the management and the corporate culture are seen as very positive. More than 90% of the participants believe in the future of the company and in its innovative strength in the area of product development. And something not to be underestimated: four out of five employees see Geberit as an environmentally conscious company. The survey also confirms the employees’ trust in the leadership. Over 70% trust the management team and feel supported by their direct supervisors in terms of training and development.

Among other things, there is potential for improvement in the work-life balance perceived by employees – an effect of the high level of orders since the start of the pandemic; nevertheless, 60% of the workforce still finds the ratio of working time to private life appropriate. As this is not the only area where there are significant differences between the individual Geberit sites, measures for improvement will be defined and implemented at local and departmental level following consultation with the employees.

Equal pay analysis

An equal pay analysis in Switzerland, reviewed externally, confirmed that equal pay between female and male employees is upheld.

Face-to-face training extended by innovative online concepts

In the reporting year, many industry events such as trade fairs, training courses and seminars were once again, at least in part, held digitally. We took this development into account both in our direct customer service approach and in market cultivation with a number of measures and innovative concepts. This is why, for example, in spring 2021 we came up with the global online event “Geberit Innovation Days” – to be able to present new products and maintain dialogue with the professional community. A hybrid trade fair booth – the “House of Geberit” – was set up for this purpose. While an actual booth packed with numerous new products was constructed across an area of more than 300 m², it was only possible to visit it online – hence the hybrid tag. During the Innovation Days in March and April, around 10,000 interested parties from more than 40 countries logged on and visited the webinars on offer. All webinars were uploaded to the local Geberit websites after the Innovation Days and visited more than 53,000 times by the end of the year.

In spite of the restrictions in place due to the pandemic, it was possible to provide around 36,000 (previous year 27,000) professionals with face-to-face training on products, tools, software tools and installation skills at the 30 Geberit Information Centres in Europe and overseas. This more or less corresponds to the number of participants recorded before the pandemic. At the same time, local events and counter days were organised in numerous markets – often together with wholesalers – to train craftsmen on new products. More than 38,000 customers took part in such events. The normalisation in face-to-face training and the personal transfer of know-how and expertise resulted in a decline in the number of web-based seminars and training sessions, with a total of 29,000 participants (previous year 52,000). Nevertheless, webinars and eLearning courses that take place over the Internet now occupy a firm and important place in our training offer.

New products for our markets worldwide

In 2021, we once again expanded our product range, launching numerous new products on the market. With FlowFit, we introduced a new piping system for drinking water and heating applications. The pressfittings in the connection technology not only set new standards in terms of easy and reliable installation, but also in terms of their flow characteristics. The development of FlowFit all the way through to series production was one of the most financially significant development projects in our history. Among other things, we also expanded the integrated bathroom series Geberit ONE launched in 2019 with numerous components and configuration options, and introduced an electronically controlled sanitary flush, integrated in concealed cisterns, as well as a concealed cistern developed for the markets in Asia and Africa.

High-performance and efficient production network

The Geberit Group operated 26 plants at the end of the reporting year, 22 of which are located in Europe, two in the US, one in China and one in India. The activities of three smaller plants in China, the US and Ukraine were integrated into other, larger sites due to a lack of critical size and partly poor logistical connections.

The productivity of the production network increased in the reporting year by 5.9%. This increase is essentially due to four factors: the continued optimisation of organisation and process workflows, the automation of individual manufacturing steps, the reduction of scrap rates in ceramics production and the less than proportional low increase in the number of staff in non-manufacturing areas of the company.

The unexpectedly high level of sales in the reporting year posed major challenges to the entire production network. Our plants and the employees who work there once more demonstrated their high performance and flexibility. At many sites, there were months of extra shifts to simply cope with the order load. Matters were complicated further by the simultaneous shortage of various raw materials. Despite the high capacity utilisation, numerous measures and projects were again initiated, promoted or brought to a conclusion in the reporting year, with the aim of optimising the efficiency of production processes, increasing capacities, and improving energy and material efficiency.

Further improvement of environmental performance at a high level in the reporting year

The absolute environmental impact of the Geberit Group increased in 2021 by 4.0%; this was accompanied by an increase in the currency-adjusted net sales in the same period of 14.7%. In contrast, the environmental impact in relation to currency-adjusted net sales (eco-efficiency) decreased by 9.3%. Since the integration of the energy-intensive ceramics production in 2015, eco-efficiency has improved by 40.9%. As regards the long-term target, which is based on an average annual improvement of 5% per year, we therefore remain very well on course.

Due to the strong volume growth, CO₂ emissions increased in comparison to 2020 by 5.1% to 217,009 tonnes. In relation to currency-adjusted net sales, however, emissions decreased by 8.4%. This means that in turn we were able to exceed the targets for reducing CO₂ emissions set within the framework of the CO₂ strategy.

New CO₂ strategy for further reduction of emissions

For many years now, we have been committed to reducing our environmental impact and contributing to achieving global climate goals. We developed a new CO₂ strategy to reduce emissions further. This new strategy is a continuation of the successfully implemented strategy 2015–2021. Since the acquisition of the energy-intensive ceramics production in 2015, we have been able to reduce CO₂ emissions in relation to currency-adjusted net sales (CO₂ intensity) by an average 7.7% per year. In comparison with 2015, this represents a reduction of 38.3%. It was also possible to reduce absolute CO₂ emissions to below the target value of 240,000 tonnes (2021: 217,009 tonnes). This meant the main goals of the strategy were exceeded. These results mean that between 2015 and 2021, we overfulfilled the target (Scope 1 and 2) specified in the Science Based Targets Initiative (SBTi) of limiting global warming to “well below 2°C” above pre-industrial levels.

As part of the new CO₂ strategy, we are extending tested and successful measures and adding new elements to them. As the Geberit Group, we stand for an ambitious and implementation-oriented approach in our activities. This also applies to the new CO₂ strategy. The central element is the integration of the CO₂ strategy in all relevant and existing business processes as well as the handling of CO₂ emissions as external costs by means of internal CO₂ pricing. In this way, Geberit wants to ensure that the procedure of reducing the company’s carbon footprint is widely supported within the company, incorporated in daily business activities, and that the measures taken have a long-term, sustainable effect.

Overview of measures to reduce CO₂ emissions

The new CO₂ strategy thus combines ecological and economic sustainability and focuses on short- and medium-term, realistic and measurable objectives. The goal is to reduce CO₂ intensity by an average 5% per year. As a result, absolute CO₂ emissions will be reduced long term to 136,000 tonnes by 2035 if the short- and medium-term goals are achieved. In comparison with the reference year 2015, the relative CO₂ emissions will be reduced by 70% by 2030 and by 80% by 2035. The envisaged reduction (Scope 1 and 2) is in line with the target specified in the Science Based Targets Initiative (SBTi) of limiting global warming to “well below 2°C” above pre-industrial levels.

Short- and medium-term goals with long-term effect

(Index: 2015 = 100)  

For more details, see the new CO₂ strategy and the Sustainability Performance Report.

Circular economy and eco-design

The aim of the circular economy is to operate an economic cycle in the most resource and environmentally friendly way possible. The service life of a product plays a pivotal role here. The longer a product can be used, the lower the resource input per use. One of Geberit’s key contributions to the circular economy is therefore to achieve the longest possible product life thanks to high-quality materials and strict quality requirements. Geberit products typically have a service life spanning several decades. The service life often exceeds 50 years, for example in the case of plastic discharge pipes. An important contribution to the service life is that a significant proportion of the product range also has a guaranteed spare parts availability of 25 years. Furthermore, many Geberit products can be cleaned, maintained and repaired easily. The fact that new products and innovations are backwards-compatible – for example in the case of actuator plates – is also an important contribution to a longer service life of a previously installed product.

Since 2007, Geberit has consistently used the eco-design principle for the development of its own products. All environmental aspects are examined and the circular economy taken into account, from the selection of raw materials right through to disposal. Every new product has to be better than its predecessor from an ecological perspective. The energy efficiency and the water consumption of the products in the product use phase are continuously improved. Thanks to an intelligent redesign, around half of the material used for the fill and flush valves launched in 2021 for the range of floor-standing WCs in the Nordic countries is made of high-quality ABS regranulate, for example. Since 2007, the systematic eco-design principle has been used in more than 170 product developments. In production, the goal is to close internal material cycles, and to minimise waste and recycle it where appropriate. For example, almost 100% of plastic waste is recycled internally and reused, which corresponded to around 10,000 tonnes of plastic in 2021.

Continued attractive distribution policy

The Geberit share price started the trading year 2021 at CHF 554.20 and closed at CHF 745.20, corresponding to an increase of 34.5%. In the same period, the Swiss Market Index (SMI) posted gains of 20.3%. Viewed over the past five years, the Geberit share posted an annual average increase of 12.8% (SMI +9.4%). As in the past, we wish to let the shareholders benefit from the very good development of the business and will maintain the attractive distribution policy of previous years. Therefore, we will propose to the General Meeting an increase in the dividend of 9.6% to CHF 12.50. The payout ratio of 59.0% of net income is in the mid-range of the 50% to 70% corridor defined by the Board of Directors.

In 2021, CHF 405 million was distributed to shareholders as part of the dividend payment. The share buyback programme launched on 17 September 2020 was continued. In the reporting year, 250,000 shares were acquired at a sum of CHF 166 million. CHF 571 million, or 70.6% of the free cashflow, was therefore distributed to shareholders during the reporting year as part of the dividend payment and the share buyback programme. Over the last five years, we have paid out around CHF 2.6 billion to shareholders in the form of distributions or share buybacks, which corresponds to 80.7% of the free cashflow in this period.

Changes in the Board of Directors and the Group Executive Board

At the General Meeting on 14 April 2021, Thomas Bachmann was elected as a new member of the Board of Directors at Geberit AG, replacing Hartmut Reuter who did not stand for re-election.

The Board of Directors has appointed Tobias Knechtle as the new Head of Group Executive Area Finance (CFO) and as a member of the Group Executive Board with effect from 1 January 2022. Tobias Knechtle joined the company on 1 November 2021 and replaces Roland Iff, who retired at the end of 2021 following 17 years as CFO at Geberit.

Sincere gratitude

We owe the very good results in the reporting year – in a once again challenging operating environment – to the great commitment, high degree of motivation and expertise of our employees. We wish to express our thanks and appreciation for their exemplary performance. Our customers again deserve special thanks for their trust and constructive collaboration. Last but not least, we also wish to express our gratitude to you, esteemed shareholders, for your continued great trust in our company.

Outlook for the year 2022

As a result of the ongoing considerable uncertainties in relation to the COVID‑19 pandemic and its further development, the unstable geopolitical situation as well as, generally, the lack of visibility, it remains very difficult to provide an outlook, which is why this has been dispensed with in this annual report.

In the coming year, the objective is again to perform strongly in all markets and, as in previous years, to gain further market shares. To this end, significant contributions will be made by new products introduced in recent years, the focus on markets in which Geberit products or technologies are still under-represented, and the further expansion of the shower toilet business. In line with the Geberit strategy, these measures shall be accompanied by efforts to continuously optimise business processes in order to be able to achieve continued high margins and a strong free cashflow also in 2022. Based on the strong foundation already built up over the past decades, our sustainability performance should also continue to improve.

Both the Board of Directors and the Group Executive Board are convinced that the Geberit Group is very well equipped and positioned to meet current and upcoming opportunities and challenges. The possibilities offered as a result of combining technical know-how in sanitary technology “behind the wall” and design expertise “in front of the wall” will continue to be firmly seized. In 2022, focal points will again be the continued implementation of our digitalisation strategy as well as our new CO₂ strategy. Experienced and highly motivated Geberit employees, a number of promising products that have been launched in recent years and product ideas for the more distant future, a lean and market-oriented organisation, an established cooperation based on trust with the market partners in both commerce and trade, and the Group’s continued solid financial foundation are vital to its future success.

Yours sincerely,

Albert M. Baehny
Chairman of the Board of Directors

Christian Buhl
CEO